United's Orderly Leadership Transition: What Well-Run Companies Do

I awoke Thursday morning to a flurry of emails about the personnel changes at the top being announced at United. One from a United spokesperson included the press release and said simply, “call me when you can.”

Before making the call, I made sure to read through the release in detail. In May 2020, current Board Chair Jane Garvey will retire. Current CEO Oscar Munoz will step up to be the Executive Chair of the Board, and that means current President Scott Kirby will become the CEO. Upon reading the release, I could think about just how unsurprising it was. Then I picked up the phone.

Though the discussion was mostly for me to ask questions, I was struck by one thing I was told. “This is how well-run companies work,” she said. Only in this industry would that concept need to be explained. It is absolutely true. A well-run company has a leadership succession strategy that, when implemented, shouldn’t be a surprise. This happened when Ed Bastian stepped into Richard Anderson’s shoes at Delta, but it’s been more the exception than the norm over the history of the airline industry.

After hanging up, my mind remained stuck on that sentence. Had United really changed so much in less than three years? Had it gone from a botched merger, bribery scandal, and passenger dragging to… a well-run company? To quote the Magic 8-ball, all signs point to yes.

When Oscar took over in 2015, United was in turmoil. It was more than five years into its merger with Continental, and the airline was floundering. CEO Jeff Smisek had lost the employees, and had made questionable decisions during his tenure. Many expected him to go, but few probably figured it would be a bribery scandal that would take him down.

The board was a mess, faced with trying to find someone to take over. They turned to one of their own, a railroad man and airline novice named Oscar Munoz. When Oscar took over, I wrote this:

The employees of United have had a long and painful few years. Oscar may be someone who can help end that streak, but he can’t magically fix the airline overnight. He needs to surround himself with the right people who can actually run the business. I’m going to be watching closely to see what kind of moves are made at the top, since it’s the composition of his executive team that will make or break his tenure at United. I’d hope that in the first few months, we’ll see some big changes.

I’m naturally skeptical, but I want to be optimistic. Can this guy really come in from outside the industry and transform the airline? Good luck, buddy. But after so many years of things not going right, United employees, customers, and Wall St are ready and willing to be led in a new direction. It doesn’t happen often that all stakeholders are on the same page, so hopefully Oscar can taken advantage of this very unique situation and do some good.

This may sound like I’m psychic, but let’s remember that things did not start off well for him at all. Oscar seemed uncomfortable and didn’t appear to have a good grasp on how things worked in the airline industry. Then, a month after taking over, he had a heart attack followed by a heart transplant. That thrust the airline back into uncertainty while everyone waited to see if he could make a return. A mere five months later he was working again, but I and many others wondered if he had it in him to lead the airline for long.

With Oscar back in the saddle, I kept close watch as promised to see what happened at the executive level. It did not start off well. He brought on Jim Olson to run communications in early 2016 (gone in January 2018). Andrew Levy (gone in May 2018) came on as Chief Financial Officer and Julia Haywood (gone in five short months) as Chief Commercial Officer in August. Two weeks later, that strategy was effectively thrown out the window. Scott Kirby was pushed out at American, and United tapped him to be the airline’s new President.

By early 2017, the airline had It looked like the worst of the turbulence had passed. Scott had started to make his mark, pushing Julia out in January and bringing long-time colleague Andrew Nocella in from American in February. Then the airline fell flat on its face.

Dr. David Dao was forcibly dragged off a United Express flight by Chicago police in April 2017. The airline’s response was badly bungled, and Oscar took the blame. The board had originally promised that Oscar would take over as Board Chair in 2018. After the Dr. Dao incident, that guarantee was eliminated. Jane Garvey was elevated to be chair in 2018, and she remained in that role despite having reached the airline’s mandatory retirement age. By the middle of 2017, you couldn’t have been faulted for wondering how much longer Oscar would stick around.

Somehow, instead of following a time-honored tradition at United and failing to perform, the airline’s management rose to the occasion. The airline put out a 10-point plan on steps it would take to avoid a Dr. Dao-like incident in the future. Oscar apologized profusely. Then they all put their heads down and got to work.

Scott and Andrew began to further implement their strategy. Though he has long been known as a whiz with numbers and a pricing/revenue savant, Scott began to show that he could grow into a larger role with this new management team surrounding him. Oscar undoubtedly played a key role in helping Scott grow into that role. Scott rolled out growth plans, and Wall Street balked. Eventually, however, United was able to properly set expectations and earn the trust of others. The airline sped up its Polaris roll-out. Then it got creative with things like the CRJ-550 and most recently the A321XLR order (which I’ll be writing about soon.)

Now the airline has turned general opinion on its head. It’s hard to believe that a short 2.5 years ago, United was reeling. Now it’s running on all cylinders, and both Oscar Munoz and Scott Kirby deserve a great deal of credit. It was a rough start to be sure, but once the pieces started fitting together, it was like lightning in a bottle.

Now, they will all be rewarded by moving further up the ladder. Jane Garvey will finally be able to retire, and the board must feel confident that there is actually bench strength being generated throughout the airline. Remember my call with the spokesperson? She was very clear in pointing out that Scott would only be CEO. What will happen to the President title? It’s unclear, but Andrew Nocella has to be in the running. When it’s working right, that escalator just keeps moving upward.

It is easy to both trash United for its previous performance and then excessively throw on the accolades for how well they have become or turned around. In reality, United was poorly run from people who didn’t practice the most basic business principles. Oscar came in as an outsider to the industry – even if he was already on the board – and it wasn’t hard to see all that was dysfunctional about United.
It didn’t take long for Scott Kirby to see what was wrong with United’s network and to implement a number of very positive changes that any airline exec should have seen as needing to be done at United – but CO’s management did not.

Scott is still an industry insider that carries a great deal of bias about business that has come from a career that is almost entirely in the airline industry.

United’s board would do well to ensure that there is a broad cross-section of executive leadership that includes experience outside of the airline industry.

It is also far from clear that United will be able to maintain its momentum – but let’s also be clear that it is not industry-leading in perhaps any regard. Its operations are still middle of the pack among US airlines – and their on-time is 4th among the big 4. American, despite being often vilified, is running a more reliable operation than United. Southwest and Delta are industry leaders in terms of financial metrics – and there is still a considerable gap between UA and those two.

Yes, UA has made some very positive steps – but, in the context of both the airline industry overall and general business, UA is not yet industry leading and it isn’t clear that they will be able to move as far forward over the next few years as they have over the past few. UA turned around some pretty abysmal performance on multiple levels and that might be remarkable within UA’s history but that doesn’t necessarily translate into greatness by the standard of the best names in the airline industry or in general business.

I didn’t realize Munoz was a “railroad man.” Over at Amtrak Delta’s previous top guy, Richard Anderson, is completely botching the job. Huge changes have been made to meal service, really poor decisions, and the loyal Amtrak riders on long distance trains are incensed. Rolling stock is falling apart and there seems to be zero leadership at Amtrak’s top. Frankly, this old Continental employee is amazed that United is coming back from the dead. Thanks for the insight, Brett. Your knowledge of the industry is so good.

The Amtrak decisions are too often presented in the media without the right context. Amtrak is cutting meal service because they are mandated by Congress to do so.

They have to cut their F&B losses to zero. The corridor services already make money on Food and Beverage; the big losses are all on the long distance trains, where the cost of F&B is a loss leader for the overall service.

You can debate whether this is a good idea or not, but Congress mandated Amtrak to cut these losses by 2020 and that’s precisely where we are.

Operationally speaking, if you look at their departures on non-weather/ATC days, they’re pushing back full flights 5-10+ minutes early. That indicates a huge level of commitment from the front line team. United has way more exposure to ATC issues (SFO, EWR, ORD) than its competition, so it should be expected for them to be mid-pack. I worked at UA for 8 years in the Goodwin/Tilton days. I have never heard my former coworkers be so positive about how the company is being run, and how they’re being cared for. That right there explains why they’re hustling. I also worked at US during the Parker/Kirby days. Kirby is incredibly smart, and that shows in the changes he’s made at UA so far. If they can just keep up the employee-centric mindset, I predict success.

A major reason for the drop in operational performance is UA rebanking its hubs, getting a huge number of flights in in a short space of time and then the onward connections out just as quickly. At congested and weather prone hubs that leads to delays, certainly enough to show up on the DOT reports. I haven’t yet missed a connection this year and had precisely one (out of 70) delayed for a non-weather related issue. That said, if rebanking is the main cause (and the timing of its introduction indicates that’s likely) then some fine tuning is required. But it was the right thing to do to drive better connectivity, more passengers, higher revenue and profits.

It’s a long road back from basketcase land (2015 and earlier) but they’ve come a long way with Kirby at the helm. I agree to an extent with Tim’s analysis but things are definitely going in the right direction. On the last earnings call Kirby intimated that United is around seven years behind Delta (it was on one particular aspect, can’t remember which) but it appears to ring true for the whole airline. DL hasn’t put a foot wrong and neither has WN (and I don’t see either of them doing so in the foreseeable future) so you can’t expect UA to catch up and overtake them any time soon. It’s going to take a while, but so far so good.

The one area Kirby is largely untested at UA is his people skills, mostly because that’s what Oscar’s good at. He needs to keep the employees onside so he either needs to work on that or make sure he’s got someone very senior beside him taking care of that business. Oscar will be around for a year as executive chairman so there’s some breathing room. That said some of his recent interviews have been somewhat “softer” and less combative so maybe he’s learning or learned that.

Great article. I personally think the catalyst was Dr. Dao. I think it sparked a decision on what kind of airline they wanted United to be. It has been very cool to see their turnaround. Now if they would just bring back the Tulip.

In fairness to Smisek, I think it was more extortion and I’m not sure who he could report it to and what difference it would have made. NJ seems to be famous for corruption.

As always I wish they’d rehub cle so I can finally see the inside of terminal D….

Finally I’m not so impressed with what they’ve done with mileage plus.

I understand it is good for them financially but dynamic award prices really eliminated my desire to really try and collect miles and the “we don’t do close in award fees anymore but automatically raise the price of the award by the same amount in miles when booked close in” is pretty dirty imho.

Then the change to segment only qualification hurts me personally a bit, along with spend thresholds going up like 50% a year.

I understand as a low end silver I’m probably not that valuable, but then I don’t use many resources either and the status means United is my first choice for flying. For very little cost it makes me feel like the company cares, now it seems all they care about is spend. The fact these changes are presented as “upgrades” when they make things worse for me is icing on the cake.

Finally I hope Kirby dumps the crappy safety video tie ins, the rhapsody in blue parade one was great.

Your email address will not be published. Required fields are marked *

Comment

Name *

Email *

Website

Please type "969bcf":

Leave this field empty please:

Continue the conversation via emailGet only replies to your comment, the best of the rest, as well as a daily recap of all comments on this post. No more than a few emails daily, which you can reply to/unsubscribe from directly from your inbox.